A pensioner pays income tax on a personal annuity but the tax is refunded to her at the end of each tax year.

Am I right in thinking that if income tax refunds are not on the list of prescribed income types for PC, then it cannot be "added back" onto the annuity amount in a PC calculation? Or counted as an income source in its own right?

It's important because it makes the difference between receipt of GC or not.

Any thoughts?

We've had the problem the other way around -- client's private pension paid monthly with no deductions, he completes tax return each year and pays around £80-£90 income tax annually.

Pension Service agreed that pension income net of tax should be taken into account for PC, but that they could not pre-empt or second guess inland revenue assessment of tax due. Practical problem for our client was that he only had entitlement to Guarantee Credit when net (not gross) pension used in calculation. Savings Credit can be paid though
So Guarantee Credit only awarded to him retrospectively each year after tax demand recd (and amount of Savings Credit reduced) ...

I like your idea that the tax refund is an income that's not on the list and I hope it works for your client, but to me the logic is that the client's net income should be taken into account

alban

I suspect that there is no such type of income as an "income tax refund". What there is, instead, is an amount of annuity income which was taken by the Revenue inappropriately and later returned but is still annuity income and therefore falls under 15(1)d.

Gareth,

Just thinking through the logic of what you are saying. Would this therefore mean that a tax rebate paid to an employee (at the end of the tax year), that is awarded because an earlier coding error etc, should count as wages for the purposes of SPC? Section 15(1)d refers to "income from annuity contract", which is not the same thing as a cheque from the Revenue!

Steve

Hmm, good question.

I suspect that it's back to the 'cultural' thing again - Weekly vs Annual.

If we were to look at an annual view of this, lets assume that Tax Credits were based on net income, then it would seem to me to apply:

Annual Gross Earnings 10,000
PAYE -2,000
Rebate 1,000

would give us a reconciled net figure of 10,000-2,000+1,000 = 9,000.00.

On a weekly basis, or over 6 weeks if that's the appropriate period, then FOR THE SAKE OF CONVENIENCE the relevant amount is the Gross minus the PAYE. That doesn't mean that we are taking into account the actual net income - it just means that we need to do something now so we treat that figure as being the net income for this purpose.

In those circumstances then, usually, any reconciliation will be ignored, for the sake of convenience, even if, in strict terms, it can be seen to have been inaccurate retrospectively.

Perhaps this means that the treatment of income depends entirely on the period, and the perodicity, of the income and of the benefit / credit involved.

Tax refunds have traditionally been considered to be capital. Whilst income and capital are not defined in any of the income related benefits regulations, nor the primary legislation (except for the somewhat vague and circular definition in S15 of the State Pension Credit Act), income denotes periodic payments.

It has long been established that income metamorphoses into capital once the period it relates to has elapsed and it has not been spent, although any tax liabilites must be deducted first (see for example R(IS)3/93 R(SB)2/83 R(SB)35/83.

It does seem to be down the period, dosn't it?

I have, by the way, clearly gone bonkers as I got it into my head that we were thinking about Tax Credits for some reason.

Presumably, if the matter ended up at a tribunal, you would argue that SPC is means tested, so apply the ongoing wages as netto, whatever it is. If there is then an argument, ask to see the colour of the regs that say that tax refund should not be treated as capital (in line with the precedent cited by Stainsby etc).

Gareth, any temporary madness was probably a Pavlovian connection between Tax Rebates (the IR), and Tax Credits. This does not mean you are a bad person.

Steve